Regulatory Impact Analysis: Hopefully, a prelude to ‘Make in India’

Regulatory Impact Analysis: Hopefully, a prelude to ‘Make in India’

In view of the new ‘Make in India’ agenda of the Modi government, Aparajita Bharti
argues for the adoption of the Regulatory Impact Analysis, a global
practice to evaluate the costs and benefits of a proposed/existing
regulation, that has also found favour in Planning Commission and other
governmental reports.

Aparajita Bharti is
the founding editor of the Oxford India Policy series. She is an alumnus
of the Blavatnik School of Government, University of Oxford.

With the new government
in the driving seat and ‘Make in India’ high on its agenda, improving
the regulatory environment for business is a top priority. This is,
therefore, a golden chance for the government to introduce in India the
practice of Regulatory Impact Analysis (RIA), which is followed
worldwide to assess the costs and benefits of a proposed or an existing
regulation.

The 12th five year plan (2012-2017) recommends the employment of RIA for both existing and future regulations that impact the business environment in India. RIA
enables the governments to judge the efficiency of the proposed
regulatory framework in creating a more competitive market vis-à-vis the
compliance and enforcement costs that it puts on businesses and the governments. In some countries, RIA also includes an evaluation of other regulatory options (including self regulation) to judge the most effective way in which a near perfect market can be delivered to the consumers
at the lowest cost. RIA is considered an important activity as it
exposes compliance and other costs arising out of the new regulations,
which are ultimately passed on to the consumer. It enables the
governments to weigh these costs against the benefits that accrue to the
consumers as a result of the regulation. Although RIA may come across
as expensive, however, in the long run, it saves huge costs that are
incurred because of an inefficient regulatory framework.

The Planning Commission proposed in the 12th
five year plan that a National Business Development and Regulation Bill
should be brought to the Parliament that would enable mandatory
employment of Regulatory Impact Analysis by the Central and state
governments before a regulation is passed (ex-ante analysis) and will
include periodic reviews of regulation (ex-post analysis). The ex-ante
analysis will enable the government to take an informed decision from
the different options available for regulation to be able to select the
one which imposes minimum burden on businesses and consumers. Ex-Post
analysis will ensure that the government is able to analyze the
effectiveness of enforcement of regulations and lift regulation when it
becomes unnecessary in a given market (invoking the sunset clause).

The need for
RIA was also highlighted by the Government Committee for Reforming the
Regulatory Environment for Doing Business in India that submitted its reportin
September 2013. It proposed that every regulatory authority, central or
state government, ministries or departments should have a Regulation
Review Authority within itself tasked to undertake the Regulatory Impact
Analysis of all regulations proposed by the respective body.

Most OECD
countries have mandated the use of Regulatory Impact Analysis in varying
degrees ranging from use of RIA only for primary laws to secondary laws
and rules. US promoted analysis of regulations since 1970s; however, in
2011, US enacted the Financial Regulatory Responsibility Act to ensure
that all financial regulators conduct comprehensive and transparent
economic analysis before adopting new rules. In UK, Financial Services
and Markets Act, 2000 was enacted, obliging the Financial Services
Authority (FSA) to undertake a cost-benefit analysis (CBA) of any rules
or regulations it proposes for the efficient governance of financial
markets. Australia requires Regulatory Impact Statements (RIS) for
primary laws, subordinate regulations, international treaties and
quasi-regulations that have an impact on business or competition.

In keeping with the recommendations of the 12th
five year plan, the government should introduce the National Business
Development and Regulation Bill at the earliest in the Parliament, to be
later adopted by the state legislatures after the model legislation.
This Bill will provide for mandatory RIAs for all National regulators,
Central ministries and departments. This will also bolster the
confidence of investors in the stability of regulatory framework in
India.

In addition,
a centralized grid with existing regulations- sorted and mapped
location and industry wise should be made available through the ‘Make- in- India’
portal launched by the Modi government. This will not only enable
businesses to access the regulations that are applicable to them given
their industry and location of operations but will also assist the
National Regulators, Central and the State governments to identify
overlapping and outdated regulations which put unnecessary burden on
businesses.

One hopes
that the government of the day will recognize the immediate and the long
term benefits of making RIA a standard practice before adoption of new
regulations. It will also signal the strong commitment of the government
towards simplifying the regulatory framework in which business in India
operates.